Does Standard Life Plc And Aberdeen Asset Management plc Merger Have Greater Investment Appeal Than Aviva plc, Standard Chartered PLC And HSBC Holdings plc?

Could an investment in Standard Life Plc (LON:SL) (LSE:SL.L) and Aberdeen Asset Management plc (LON:ADN) (LSE:ADN.L) outperform an investment in Aviva plc (LON:AV) (LSE:AV.L), Standard Chartered PLC (LON:STAN) (LSE:STAN.L) and HSBC Holdings plc (LON:HSBA) (LSE:HSBA.L)?

Standard Life Plc
Standard Life Plc

Investors in Standard Life Plc (LON:SL) (LSE:SL.L) and Aberdeen Asset Management plc (LON:ADN) (LSE:ADN.L) have woken today to the news of a possible merger between the two investment companies.

The boards of the two investment houses have reached agreement on the terms of a recommended all-share merger between Standard Life and Aberdeen Asset Management. The combined group is expected to incorporate the names of both stocks, with investors in Aberdeen Asset Management entitled to receive 0.757 new shares in exchange for each of their existing shares.

Based on this exchange ratio and the closing share price of 378.5p per Standard Life Share on 3 March 2017, the merger values each Aberdeen Asset Management share at 286.5p and Aberdeen Asset Management’s existing issued ordinary share capital at approximately £3.8 billion.

Following the merger, investors in Aberdeen Asset Management would own approximately 33.3%, and investors in Standard Life would own approximately 66.7% of the combined company’s shares.

According to today’s investor update from Standard Life, the merger will result in material earnings accretion for both sets of investors due to the synergy potential of the merger. The investor update also says it will harness Standard Life and Aberdeen Asset Management’s complementary capabilities and establish one of the largest and most sophisticated investment solutions.

In the last month, shares in Standard Life and Aberdeen Asset Management have risen 7% and 14% respectively. That’s ahead of the investment performance of financial services peers Aviva plc (LON:AV) (LSE:AV.L), Standard Chartered PLC (LON:STAN) (LSE:STAN.L) and HSBC Holdings plc (LON:HSBA) (LSE:HSBA.L). Standard Chartered’s shares are down 6%, HSBC is 3% lower and an investment in Aviva has moved 3% higher.

In my view, the merger could be good news for investors in Standard Life and Aberdeen Asset Management. If it can create synergies and improve profitability then I believe the merged company’s share price could perform relatively well. I’m still optimistic about the prospects for Aviva following its merger with Friends Life, while I think Standard Chartered and HSBC could register improved investment performance as their strategies take effect. But I am also of the view the Standard Life and Aberdeen Asset Management merger will perform relatively well in the long run.

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